The hopes for Petrobras (ticker: PBR) investors and Brazil’s pro-business advocates were dashed on October 27, 2014, with the announcement of Dilma Rousseff winning a second term as the country’s president. The challenger, Aecio Neves, fell just short of unseating Rousseff, losing by roughly 3.2% of the vote. Many news outlets and energy analyst reports claimed a victory by Neves would be the best interest for Brazil’s economy. Potential beneficiaries of a Neves win would have included oil giant Petrobras, an $85 billion company, the largest in...

Analyst Commentary

Raymond James Equity Research Note Oct. 27, 2014:

Petrobras (PBR/$12.93/Market Perform): In yesterday's second round of the Brazilian presidential election, President Dilma Rousseff was narrowly reelected: 51%, vs. 49% for Aecio Neves. With PBR shares falling ~30% over the past ten days, it's clear that market expectations had already shifted towards greater odds of reelection for Rousseff. While some weakness in the stock (and, indeed, the Brazilian market more broadly) is possible today, the election result is consistent with almost all of the recent polling. As we noted in our Petrobras brief on October 6 (the day after the first round), PBR shareholders had been clearly hoping that Rousseff would not prevail in the runoff. Petrobras has seen a major escalation of debt during Rousseff`s first term (up to $140 billion as of 2Q14), primarily due to severe downstream losses as a result of being historically obligated to sell fuel at prices below international benchmarks. Victory by Neves would have been the more advantageous outcome from Petrobras' standpoint, for example vis-à-vis loosening domestic content rules. However, we also made the point that, regardless of the runoff result, it would be unrealistic to expect a dramatic fuel price hike on day one. This would be an extremely unpopular move and would cause economic dislocation, especially in the context of Brazil's already high inflation (above the central bank's target). Ironically, the recent fall in Brent crude prices helped narrow the price gap in Petrobras' downstream segment - though it's still a net negative for companywide cash flow.

OTIC Feb. 23, 2018 – Dallas

EnerCom 360 Magazine

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